All you want to know about alternative asset class – P2P lending

Following the global
financial crisis, certain market forces at play led the way for a direct
lending asset class for investors. Banks, through savings accounts or fixed
deposits, provide interest rates of around 6-8%. In contrast, peer-to-peer
(P2P) lending in India currently gives a net return of 18% to 22% to lenders.

This is chiefly achieved
by connecting lenders directly with borrowers, something which drastically
reduces the operational costs.

What P2P lending offers
investors

* P2P lending in India
currently gives a net return of 18-22%

* Borrowers repay
principal & interest every month so there is a steady cash flow

* Investors can pursue
legal recourse against the borrower in case of defaults

* By diversifying your
investment across different borrowers, you will begin to mirror the overall
default rate of the platform

If you are an investor
looking to diversify your portfolio, here are three main reasons why you must
consider investing in peer-to-peer (P2P) lending.

1. Exciting returns..!

P2P lending is consistently delivering net
return upwards of 18% per annum. It takes about 18 months and an investment of
up to Rs. 10 lakh across a diversified portfolio to stabilise at 18-22%.

Add to this the fact
that since borrowers repay every month (principal and interest), there is a
steady cash flow coming in every month. Reinvesting this monthly inflow means
an opportunity to earn even greater returns.

2. Stable asset class..!

For an average investor, P2P lending is a good
asset class of consumer credit.

P2P lending is like
investing in debt; the capital risk is lower, and there exist ways to mitigate
it. In case a borrower defaults, investors can pursue legal recourse against
the borrower. Such a provision is not possible if you invest in stocks and
bonds.

By diversifying your
investment across different borrowers, you will begin to mirror the overall
default rate of the platform, gaining stability and consistency within your
portfolio and enjoying the returns just like a bank does.

3. Participate in
India’s financial growth and inclusion..!

The money you invest helps bring positive
changes in people’s lives. People are able to come out of credit card /debt
trap, a father is able to get his daughter married, a son is able to make his
mother healthier, businessmen are less stressed.

P2P lending companies
are giving you the opportunity to invest in and help out a fellow Indian under
pressure due to lack of access to easy and cheaper credit.

A smart investor invests
across various investment opportunities like equity and stocks, mutual funds,
SIPs, or deposits with banks such as saving, recurring, or / fixed deposits.
Alternative investments include real estate, gold, art, and P2P lending and
tend to give higher returns.

To beat inflationary
trends, experts recommend that 20% of total investments should ideally be in
alternative investments.